CEO SUMMARY: Shifting office-based physicians to Web-accessed lab test ordering proved to be a daunting task for WebMD and its early competitors. Probably the most significant discovery is that modest capabilities of existing software technology and the lack of Internet broadband connections into doctors’ offices combined to make this proposition a tough sell during the past 18 months.
WHEN IT COMES TO THE TOPIC of Web-accessed laboratory test ordering, events have unfolded slowly in the marketplace for clinical laboratory services.
That’s certainly not what most experts, including THE DARK REPORT, expected and predicted. During 2000, many contracts to implement Web-accessed lab test ordering announced during the last half of 1999 failed to become reality.
For instance, at the end of 1999, it was universally recognized that WebMD, Inc. (then called Healtheon/ WebMD, Inc.), had the financial clout and market influence to become a major player in the American healthcare system.
Big Lab Contracts
In the clinical laboratory segment, WebMD had publicly announced contracts involving its “Dx” product for Web-accessed lab test ordering and results reporting with Laboratory Corporation of America, DIANON Systems, Inc., and UroCor, Inc.
WebMD was also managing the communications network for Smith-Kline Beecham Clinical Laboratories, which had been acquired just months before by Quest Diagnostics Incorporated. Combined, these contracts gave WebMD access to more than half of all the commercial lab testing business that existed in the United States!
How quickly the high and mighty fall. Just 14 months later, WebMD is struggling to maintain financial solvency. Where WebMD seemed once poised to capture a huge share of the business of transacting orders between physicians’ offices and laboratories, it now has a shattered reputation among many clinical laboratories.
In fact, on January 31, 2001, WebMD laid off the last sales and marketing person responsible for Dx. WebMD has effectively sidetracked Dx to concentrate on integrating its acquisitions of Medical Manager, Care-Incyte, Envoy, and other healthcare companies.
It turned out to be a similar story at Advanced Health Technologies, Inc. (AHT), owner of the Dr. Chart product used by many laboratories. In the fall of 1999, AHT had both credibility and contracts with a surprising number of America’s most respected integrated health systems (IHN). Yet, like WebMD, financial problems prevented AHT from capitalizing on its early lead. The company entered bankruptcy in the fall of 2000 and has yet to completely resolve its financial problems.
But the slower pace of introduction can not be attributed solely to problems at WebMD, AHT, and other vendors. After all, Web-accessed lab test ordering offers compelling economics to clinical labs. This approach to linking physicians’ offices and labs has the potential to reduce existing information system costs by as much as 90%!
Lab Industry’s Innovators Slowed by Vendor Problems
FINANCIAL TURMOIL at both WebMD, Inc. and Advanced Health Technologies, Inc. directly caused a delay in the introduction of Web-accessed lab test ordering and results reporting for at least one unrecognized reason. In late 1999 and into early 2000, many of the nation’s most progressive lab managers began meeting with the sales staffs from these two companies. These labs were motivated to introduce lab test ordering via the Internet and were ready to implement a product which met their needs.
However, neither WebMD nor AHT were ready to deliver product, but the sales staffs of these companies were reluctant to be candid with prospective buyers about actual implementation dates. Call it the “vaporware factor.”
For that reason, many labs motivated and ready to move forward with Web-accessed lab test ordering ended up wasting a year in fruitless sales negotiations. From one perspective, many of the laboratory industry’s early adopters were “sandbagged” by a couple of once-credible vendors.
Several Key Reasons
There are four key reasons why Web- accessed lab test ordering has lagged behind expectations. They have to do with: 1) the business priorities of the larger commercial labs: 2) the actual performance of the current generation of lab test ordering software; 3) the existing capabilities of most physicians’ offices to use Internet-based services; and 4) the willingness of physicians to accept the concept of ordering lab tests via the Internet. Here are details on each:
1. Business priorities of commercial labs:
In general, the most aggressive changes which occur to the lab industry are driven by the nation’s largest commercial lab companies. For instance, commercial labs instigated widespread lab consolidation (by acquisition), accepted capitated managed care contracts, and initiated “marginal cost” pricing to gain sole source HMO contracts. In each case, regional labs and hospital labs had to respond to maintain their competitive position in local markets.
As of the second half of 1999, two of the three biggest commercial lab companies were affiliated in some way with WebMD. Yet, for some interesting reasons, none of the lab industry’s billion-dollar behemoths ended up rushing to introduce Web-accessed lab test ordering and results reporting.
Had either of the two remaining national labs made it a priority implement lab test ordering via the Web on a wide scale in 2000, it’s logical to conclude that competing labs would have responded with their own test ordering/results reporting solutions. This would have been a defensive move to preserve their share of the physicians’ office marketplace.
Why did Quest Diagnostics and LabCorp choose not to push forward rapidly in 2000 with a national roll-out of Web-accessed lab test ordering? The answers lie in the three reasons explained below.
2. Disappointing performance of the first generation of Web-accessed lab test ordering software:
Frankly said, the lab ordering systems which came closest to meeting the needs and expectations of the laboratories proved to be deficient in meeting the needs and expectations of the physicians’ office users.
This software code had to properly address medical compliance guidelines, lab test catalogs, and laboratory ordering rules. In order to reach into the physician’s practice management software to pull out patient demographic and billing data, it needed to interface with the multitude of different vendors’ products found in doctors’ offices.
At WebMD and several other companies, the resulting software product proved to be great at gathering every- thing the lab needed to properly run the test and generate a clean bill. But these first-generation systems were complicated and intrusive to the doctors’ staff who had to actually use the software to generate a test requisition.
It didn’t take long for vendors and the participating lab to learn that these systems were not “user-friendly.” Feedback from physicians’ offices where Web-accessed lab test ordering was undergoing trial evaluation was immediate and unequivocal.
In terms of functionality and ease of use, these first-generation systems failed to measure up. But there were other problems, equally challenging to the concept of Web-accessed lab test ordering from the physician’s office.
3. Inadequate broadband access and Internet expertisenin most physicians’ offices:
Efforts to establish Web-accessed lab test ordering in physicians’ offices ran into a major obstacle. The required software was complex. To work effectively, it needed a broadband Internet connection between physicians’ office and the ISP (Internet service provider).
Yet few doctor’s offices were equipped with T-1 lines, cable modem access, ISDN, or DSL. In fact, many offices were still using practice management computer systems operating on a PC-486 chip with a 14.4KB or 28.8KB dial-up modem!
Moreover, few doctors’ offices had an individual who was Internet-savvy and willing to tackle the job of learning this rather complicated system so they could teach other staff members how to use it.
For both system vendors and their laboratory customers, this was an insurmountable problem. The systems’ end user—the physicians’ office—lacked both the required communications infrastructure and the knowledge base to make a successful go of lab test ordering via the Internet.
4. Willingness of physicians to accept the concept of ordering lab tests via the Internet:
This factor deals with motivation. Doctors asked the lab “what’s in it for me?” The answer they got was “not much!”
After all, the software system used to order lab tests over the Internet was complex, frustrating to use, and unacceptably slow. Moreover, the doctor was going to have to spend money to acquire broadband access. His staff would be distracted by the needed training. These disadvantages were off-set by few advantages. That is why only a limited number of physicians were eager to embrace this new method for ordering lab tests.
Blood Brothers Pursue “Do it Yourself” Strategy to Shave Costs and Incorporate EMR Capabilities
IT’S ALL ABOUT COST AND CONTROL. When the two Blood Brothers decided to bypass vendors like WebMD and pursue Web-accessed lab test ordering on their own, it was a calculated strategy designed to capture most of the cost savings from shifting to a thin client, ASP solution.
If a commercial lab can eliminate the PCs, teleprinters, and dedicated phones lines they keep in physician’s offices, the savings are potentially immense. Depending on the size of the laboratory and its transaction volume, each patient encounter (test requisition received and lab test result reported) costs between $2.00 and $3.00.
WebMD offered to handle these transactions for a clinical lab at a price of 65¢ to 75¢ per patient (test requisition and report of results). Currently, vendors are offering prices as low as 25¢ to 40¢ per patient.
It should be no surprise, then, that the national labs, after studying the technology which supports the thin client, ASP service model embraced by WebMD, decided they could engineer their own solution for test ordering for a lot less money.
The electronic medical record (EMR) also played a role in delaying implementation of Web-accessed lab test ordering. Business strategists at the nation’s larger laboratories recognized that all segments of the healthcare marketplace were evolving toward a universal EMR.
This includes hospitals and integrated health networks (IHN), physicians, payers, and patients. Since the majority of a permanent medical record is laboratory test data, it didn’t take long for the national labs to recognize the obvious opportunity: their customers wanted better access to lab test results. They didn’t necessarily want to order lab tests over the Internet.
The shift to emphasize enhanced services over test ordering was driven by customer expectations. It explains why Quest Diagnostics began devoting significant resources to its business relationship with Caresoft, Inc. (with the mydailyapple.com Web site that allows patients to access their personal lab test results) and MedPlus, Inc. (which is offering systems for moving clinical information and managing an EMR for individual patients).
Strong Revenue Growth
These four basic reasons played a major role in slowing the introduction of Web- accessed lab test ordering into physicians’ offices. The benefits to a laboratory are obvious, immediate and substantial. Unfortunately, this has not been the case for physicians and their staffs.
After reviewing the experience of the first-generation vendors to offer Web-accessed lab test ordering, industry insiders tell THE DARK REPORT that two things must happen to accelerate physician acceptance of this feature.
One, the software systems which support lab test ordering must become simpler, faster, and exceptionally easy for users to operate. Second, the more physicians’ offices with broadband Internet connections, the easier it will be for them to accept and use Web-accessed lab test ordering.